AJIT K. SENGUPTA, J

(1) LIT this reference under Section 256 (1) of the Income-tax Act, 1961, the Tribunal has referred to this court the following questions of law :

"1. Whether the Tribunal is right, on the facts and in the circumstances of the case, in arriving at the finding that the partner who had certainly objected to the apportionment of her income and tax thereon had a right of appeal under Section 246 (c) read with Section 247 because it cannot be that there can be no appeal against the allocation altogether

(2) WHETHER the Tribunal is right, on the facts and in the circumstances of the case, in interpreting that, though the firms appeal was dismissed earlier as incompetent, yet the Appellate Assistant Commissioner was justified in entertaining the appeal filed by one of the partners of the firm, Messrs. A. K. Mundra and Co. "

2. Shortly stated, the facts are that originally a firm, Messrs. Arun Kumar Mundra and Co. , had declared its status as such as it had not asked for registration. Therefore, it had been assessed as an unregistered firm. According to clause 6 of the partnership deed constituting the assessee-firm, the profits of the firm were to be accumulated for a period of eight years and there was to be no distribution thereof amongst the partners. The Income-tax Officer, however, relied upon Section 13 of the Partnership Act according to which there was a provision for equal sharing of profits and losses between the parties subject to any contract to the contrary. Since there was no specific agreement determining the ratio in which the profits or losses were to be shared, the Income-tax Officer assessed the firm on a total income of Rs. 20,300 and, relying upon the provisions of Section 13 (b) of the Partnership Act, he allocated the same in the ratio of one-third each.

(3) BEING aggrieved by that order, the firm filed an appeal under Section 246 (c) of the Income-tax Act before the Appellate Assistant Commissioner who, vide his order dated September 5, 1979, in Appeal No. 77/ (JL) of 1979-80, held that since there was a definite contract amongst the partners as regards the distribution of the profits of the firm, Section 13 of the Partnership Act did not come into play at all. Therefore, no part of the income which was not distributed in the year of account could be added in the assessment of any partner even for rate purposes, because no income belonged to any partner as such. Thereafter, the Department came in second appeal before the Tribunal and took up an additional ground that the Appellate Assistant Commissioner could not have entertained the appeal under Section 246 (c) in the separate set of status because there was no such provision in that section. This ground was allowed and the appeal was accepted.

(4) SUBSEQUENTLY, another appeal was filed before the Appellate Assistant Commissioner by the present respondent, a partner of the firm, alleging that, in view of the order of the Tribunal in the firms case, she was entitled to challenge the order of the Income-tax Officer as a partner of the firm. The Appellate Assistant Commissioner therein held that the Income-tax Officer, while passing the order under Section 158, had lost sight of the term contained in clause 6 of the partnership deed and the income of the firm when added at the end of each year to the corpus had lost its characteristic of income and was merely in the nature of capital. He, therefore, cancelled the allocation made by the Income-tax Officer.

(5) THE Revenue came up in second appeal before the Tribunal on the following grounds :

"1. That, on the facts and in the circumstances of the case, the learned Appellate Assistant Commissioner was not justified in entertaining the assessees appeal under Section 247 of the Income-tax Act, 1961, when the assessment has been made on the firm in the status of an unregistered firm.

2. That the learned Appellate Assistant Commissioner was not justified in entertaining the assessees appeal when she has neither objected to the determination of income nor the tax nor the status.

3. That the learned Appellate Assistant Commissioner was not justified in entertaining the assessees appeal when the assessment order made in the case of the firm, Messrs. A. K. Mundra and Co. , had become the subject-matter of appeal by the firm and whose appeal was earlier disposed of by the Appellate Assistant Commissioner. "

(6) THE Tribunal rejected the grounds observing as under :

"so far as the first ground is concerned, apparently Section 247 contemplates an appeal by the partner on behalf of the firm against the order of the Income-tax Officer determining the total income or the loss of the firm or the apportionment thereof between the several partners. The representative of the Revenue, however, referred to some observations at page 300 in CIT v. S. K. Basu, wherein, referring to the second proviso to Section 30 (1) of the Indian Income-tax Act, 1922, which nearly corresponds to the present Section 247, the Calcutta High Court observed that it is only in the case of an assessment of a registered firm that a partner would have a right of appeal and this proviso would have no application to unregistered firms. We are afraid this argument is not conclusive. The observations were made by their Lordships in a different context, inasmuch as in that case the notice of demand against the firm had been issued for the full amount on each of the ex-partners and, therefore, their Lordships held that each partner had a separate right of appeal and a decision in an appeal by one was not res judicata so far as the other partners were concerned. Again reference was made to the headnote in Mohan Lal Khemka v. CIT, which is more or less to similar effect, but there again their Lordships ultimately held that the partner had a similar right of appeal and this again was a decision under the old Act. No doubt, in the present case, the firm itself also filed an appeal against the apportionment made by the Income-tax Officer which was ultimately held to be incompetent by the Tribunal and was consequently dismissed. But the reason which prevailed with the Tribunal was that the Appellate Assistant Commissioner had erred in entertaining the appeal filed by the assessee-firm in view of Section 246 (c) inasmuch as the firm had no objection to the amount of income assessed or the amount of tax determined or the status under which it was assessed. Impliedly, the Tribunal held that the affected partners had a right of appeal because it cannot be that there can be no appeal against allocation altogether. Rather the language of Section 247 shows that the individual partner cannot agitate in any appeal preferred against an order of assessment determining his total income or loss in any such matter which he could take up in appeal under this section including apportionment of the total income or loss of the firm. The language, therefore, clearly leads us to the conclusion that the present appeal by the partner on behalf of the firm since it related to apportionment was competent. This ground of appeal, therefore, has no substance. The same is true of ground No. 2. No doubt, the assessee did not object to the determination of any income or the tax or the status, but she had certainly objected to the apportionment thereof and appeal in this behalf is expressly contemplated by Section 247. Therefore, this ground also had no substance. Coming to the third ground, we feel that the same is not happily worded. No doubt the assessment order in the case of the firm, Messrs. A. K. Mundra and Co. , had been the subject-matter of appeal by the firm and that appeal was ultimately dismissed as being incompetent, but this by itself means that the decision taken therein could not be res judicata either for or against the present appellant. The sum total of the earlier decision by the Tribunal was that since the apportionment of the total income affected the liability of the partners, it was they who had the right of appeal, if any. Therefore, any decision taken in that case cannot possibly be considered to have any bearing on the merits of this appeal. In other words, we would have to consider this appeal on its own merits. The Appellate Assistant Commissioner was, therefore, fully justified in entertaining the present appeal. Of course, we are certainly not inclined to agree with the Appellate Assistant Commissioner on the merits of his judgment that the income of the firm had lost its characteristic as the nature of income and was more in the nature of capital. The mere fact that the capital was being increased would not take the increase outside the scope of income. The increase would be merely an application of the income, since it is not the assessees case that there were any capital gains for the firm or the partners. Therefore, prima facie, the Income-tax Officer could allocate the shares among the partners. Of course, the ratios might have to be considered by him in the light of the other detailed terms of the partnership deed and actual increases in the capital. However, unfortunately for the Department, there is no ground of appeal against the order of the Appellate Assistant Commissioner raised in this behalf. We, therefore, are not in a position to interfere with the said order for this reason. "

(7) THE first point that strikes us as crucial is the fact that the assessee was not a registered firm. The question that calls for determination is whether the partner of the firm assessed as an unregistered firm is entitled to appeal objecting to the apportionment of the firms income. In this connection, we have to note that this court held in connection with the corresponding provisions of the old Act of 1922 that it is only the partner of a registered firm who is entitled to appeal against the assessment of the firm including apportionment of the firms income amongst the partners. This was decided in CIT v. S. K. Basu.

(8) THE decision is categorical that there is no right to appeal in a case where the assessment has been made on the firm in the status of an unregistered firm. The same is the view held by the Allahabad High Court in Mohan Lal Khemka v. CIT [1971] 81 ITR 89. [LQ/AllHC/1970/200] This restrictive construction of the provision limiting the partners right to appeal against the assessment of the firm only to the case where the firm is a registered firm, is for the reason that the right conferred by the second proviso to Section 30 of the old Act of 1922 gave this right to the partners only where the partners are individually assessable on their shares in the total income of the firm. The provisions of the repealed Act were as follows :

"provided further that where the partners of a firm are individually assessable on their shares in the total income of the firm, any such partner may appeal to the Appellate Assistant Commissioner against any order of an Income-tax Officer determining the amount of the total income or the loss of the firm or the apportionment thereof between the several partners, but in respect of matters which are determined by such order may not appeal against the assessment of his own total income :"

(9) AN identical provision, though couched in different words in Section 247 of the new Act, has the same effect and purport.

"247. Appeal by partner.--Where the partners of a firm are individually assessable on their shares in the total income of the firm, any such partner may appeal to the Appellate Assistant Commissioner against any order of an Income-tax Officer determining the amount of the total income or the loss of the firm or the apportionment thereof between the several partners, but he cannot agitate such matters in any appeal preferred against an order of assessment determining his own total income or loss. "

(10) IF both the provisions are compared and contrasted, it would appear that the right is conferred only on a partner who is individually assessable on his share in the total income of the firm. This means that, where the partners of the firm are not individually assessable on their share income from the firm, the right is not available. Partners are individually assessable on the share income from the firm only when the firm is either a registered firm or an unregistered firm treated as a registered firm under Section 183 (b).

(11) THE question, however, ensues whether the share of income of the unregistered firm included in the total income of a partner for the purposes of determining average tax rates can be equated with the partners assessability in respect of his share in the profits of the firm. This necessarily takes us on to Section 86. If the Chapter heading is any indication, we have to say that the inclusion of the share income from the unregistered firm does not answer the description of the words "partners are individually assessable on their share in the total income of the firm".

(12) THE heading of the Chapter reads :

"incomes forming part of total income on which no income-tax is payable. "

(13) SECTION 86 runs as under :

"86. Other incomes.-- Income-tax shall not be payable by an assessee in respect of the following :. . . . (iii) if the assessee is a partner of an unregistered firm (not being an unregistered firm assessed as a registered firm under Clause (b) of Section 183), any portion of the assessees share in the profits and gains of the firm computed in the manner laid down in Section 67 on which income-tax is payable by the firm ;. . . . (v) if the assessee is a member of an association of persons, or a body of individuals other than a Hindu undivided family, a company or a firm, any portion of the amount which he is entitled to receive from the association or body on which income-tax has already been paid by the association or body. "

(14) THE section begins with the words "income-tax shall not be payable by an assessee in respect of the following. . . . " Therefore, it is clear that Parliament does not intend that the same right as available to a partner of a registered firm should be equally available to the partner of an unregistered firm. The income of a partner from an unregistered firm is an income in respect of which income-tax is not payable. Therefore, the inclusion of such share income from an unregistered firm in the total income of its partner for rate purposes does not imply that the said partner is individually assessable in respect of the shares in the profits of the unregistered firm. Even the apportionment of the firms income amongst the partners is not statutorily required where the firm is not registered. Section 158 requires apportionment only when the firm is a registered one or an unregistered firm assessed as registered under Section 183 (b). Therefore, Section 158 also furnished a clue to the question of individual assessability of the partners of an unregistered firm treated as such in the assessment. Section 158 is extracted below :

"whenever a registered firm is assessed, or an unregistered firm is assessed under the provisions of Clause (b) of Section 183, the Income-tax Officer shall notify to the firm by an order in writing the amount of its total income assessed and the apportionment thereof between the several partners. "

(15) IN any case, in our view, the matter stands concluded by the decision of this court in CIT v. S. K. Basu. Following the said decision, we hold that the assessee in this ease being a partner of an unregistered firm could not have a right of appeal under Section 246 (c) read with Section 247.

(16) WE answer the first question in the negative and in favour of the Revenue and against the assessee.

(17) ACCORDINGLY, the second question has become superfluous and we decline to answer it.